Launching an advertising campaign on the Internet does not guarantee success. To be competitive and attract the target audience, you need to be flexible and able to keep a balance. Performance indicators should be regularly evaluated and adjustments should be made to improve them.
An important indicator that requires constant attention is ROI in contextual advertising. In this article, we will consider all its characteristics – the essence, methods for calculating it and methods for increasing it.
What is ROI in contextual advertising?
“Return on investment” – this is how the translation of the phrase Return On Investment sounds from English, the first letters of the words of which form the abbreviation ROI. Measured as a percentage, the indicator makes it possible to quickly assess the profitability of investments and is calculated on the basis of two values: income from investments and their size.
The indicator is more often used by investors, but for marketers it is indispensable when analyzing the productivity of advertising campaigns. They turned it into ROMI, where the letter “M” indicates that it is marketing investments that are being evaluated (Return On Marketing Investment).
ROI of an advertising campaign shows its profitability, and also gives an answer to whether the return on investment in attracting customers is adequate, whether they pay off, and whether the number of customers increases.
Advice! Always control ROI. This way you are guaranteed to insure yourself against inefficient spending and always know for sure whether your marketing investments are paying off.
How to calculate the ROI of an advertising campaign?
There are several formulas for calculation, among which two are the most popular. The first one is simple and allows you to quickly assess the big picture:
As for investors, the formula is quite clear: when determining profit, subtracting the amount of direct investment from the income received from them, we divide it by the amount of investments. We multiply the obtained positive or negative result by 100 to evaluate the indicator as a percentage.
But in the context of marketing, you need to know how to calculate ROI in contextual advertising. The assessment approach is the same. We reduce the profit from the product sold as part of the advertising campaign by the amount spent on marketing activity, and divide the resulting amount by the same advertising cost.
The second formula uses the time factor:
Information! This approach is also useful for estimating the return on holding securities.
What is the optimal ROI in contextual advertising?
How to evaluate ROI in contextual advertising, and what is the optimal value of the indicator? Large values of the coefficient indicate high profitability, so you should strive for a positive trend in increasing the ROI.
- A value of 100% only means that all investments are returned, but do not bring additional income.
- If the ROI does not exceed 100%, then advertising is not working effectively – the costs exceed the return on investment.
- Values greater than 100% indicate that the invested funds not only return, but also bring additional benefits. And the higher the value, the more efficient the investment works.
Attention! For each niche, the optimal indicator will be purely individual. But you can definitely talk about success if you see values of 200-300%.
An example of calculating ROI in online advertising
An example from real life will help you better understand how the ROI of an advertising campaign is calculated. To advertise its product, the online store simultaneously connected several sites at once – Google Ads, Facebook and electronic bulletin boards. The result was revenue in the amount of 9800, 6300 and 1300 UAH for each respective traffic source. The cost of this traffic cost 3500 UAH for Google Ads, 2650 UAH Facebook audience cost, and the online store spent UAH 950 on bulletin boards.
In this scenario, it is clear that posting on boards is not cost-effective, and advertising on AdWords works more efficiently than on Facebook. Each thousand hryvnia invested in Google Ads not only returns, but also brings an additional benefit of 1800 hryvnia. Advertising campaigns for various products or services are analyzed similarly.
Advice! After any adjustments to campaigns, ROI can be calculated, thereby quickly receiving adequate information about how the changes affected performance.
The calculation helps to make prompt and informed decisions regarding advertising optimization.
How to optimize an advertising campaign using ROI?
You can use the ROI indicator in contextual advertising to increase the effectiveness of advertising on the network, for which you should adjust the ads that advertise the products for which the analysis was carried out.
You can make the following adjustments to your account settings:
- It is necessary to focus on campaigns with the highest ROI value, increasing ads in the advertising results, increasing the cost per click and increasing the number of keywords;
- We should stop incentivizing low-performing advertising campaigns with the lowest ROI by reducing the cost per click and stopping impressions for non-converting keywords;
- Edit the content of ads by adding the cost of the product to the title.
When does ROI fail?
Estimating ROI in online advertising cannot be considered as a universal tool for every situation. Sometimes his calculation does not make sense, and there are quite a few such cases. Let’s talk about the most common.
If a client does not make a decision to conclude a deal immediately, and he needs time to think, then calculating ROI based on data for a short period of time will not help to adequately evaluate the results of marketing activity. When purchasing a car or expensive equipment, the buyer can study brands and brands for a long time, analyze prices and offers.
Important! Sometimes weeks or even months elapse between the first click on an ad and the purchase. This is the reason why ROI is highly dependent on the evaluation period.
If the average cost of a deal is high enough or the prices differ greatly from deal to deal, then the calculation of ROI will also not bring the expected result. Sometimes, for example, it is enough to sell one expensive car to significantly improve the value of the indicator.
Given all the factors described, it is safe to say that the ROI ratio is an interesting and useful indicator, but only if it is used correctly. When used correctly, advertising campaign management becomes more effective.